GenuineVC David Beisel's Perspective on Digital Change

A New Dawn for Consumer Internet Acquisitions

March 26, 2012

Over the past decade, VCs have been lamenting about the poor state of the IPO markets and that the number of real potential acquirers for consumer internet startups has dwindled down to a handful, if that. Many of formerly rich acquirers like AOL and Yahoo have long since faded past their heyday, and their appetite for acquisitions has subsided along with it. The exit markets, along with the overfunding of the VC asset-class, have significantly contributed to poor returns that venture capital experienced during the 2000’s.

But now with the IPO markets opening up for the strongest of players to go public (– though certainly at a higher bar than a decade ago pre-SOX), there is reason for some optimism. That optimism, even, can extend beyond the IPO markets to M&A as well. If you examine the four largest recent (soon-to-be-)public consumer internet companies – LinkedIn, GroupOn, Zynga, and of course Facebook – there’s a clear positive pattern which is emerging about their acquisitiveness. Over the past three years, the number of startups which have been acquired by these four companies is trending upwards. The following chart details the number of startups that LinkedIn, GroupOn, Zynga, and GroupOn have acquired annually since 2009 (source: Crunchbase; 2012 total straight-line extrapolated from Q1).

While the above upward trajectory is demonstrated on a numbers basis, not a dollars basis, the former is still a direct proxy for these companies increasing their internal M&A functions. And last week’s $200M OMGPOP acquisition by Zynga is the starting-gun fire for deals that aren’t just “acquihires,” but real meaningful ones. Likely soon after their IPO, Facebook will leap out of the starting-block on that race as well.

With these new acquirers in the ring, Google will not be the only game in town with a purse and appetite for sizeable consumer internet acquisitions. The result will be more deals overall, larger deals, and more competition for them (resulting in higher exit prices). Overall, a much more positive picture than the late 2000’s.

This trend of a new generation of acquirers isn’t just relevant to consumer internet; for example, Salesforce is ramping up their own acquisition machine with three $100M+ acquisitions (Radian6, Heroku, & Jigsaw) within the past two years. In addition, these four companies aren’t the only “new” ones utilizing M&A… still-private companies like Twitter (9 acquisitions in the last year) and recently public ones (Homeaway) have a penchant for acquiring talent and real organizations that could become on the go-to short-list of strategic exits for startups.